ESMA approves cross-border arrangements for alternative funds

EUROPE – The European Securities and Markets Authority (ESMA) has approved seven new co-operation arrangements between EU securities regulators and their counterparts in various jurisdictions around the globe to better supervise alternative investment funds.

ESMA's board of supervisors approved the seven memoranda of understanding with authorities from the Bahamas, Japan, Malaysia, Mexico and the US – including the Commodity Futures Trading Commission (CFTC) – during its annual meeting this month.

Under the agreements signed, the state parties will exchange information, pay cross-border on-site visits and provide mutual assistance in the enforcement of respective supervisory laws.

The move comes to reinforce the previous 31 agreements signed in May on behalf of the EU and European Economic Area (EEA) national authorities for the supervision of alternative funds, including hedge funds, private equity and real estate funds.

The agreements cover third-country alternative investment fund managers (AIFMs) that market alternative investment funds in the EU, as well as EU AIFMs that manage or market alternative investment funds outside the EU.

The agreements also cover co-operation in the cross-border supervision of depositaries and AIFMs' delegates.

ESMA pointed out that co-operation arrangements between the EU and non-EU authorities was a "precondition" of the Alternative Investment Fund Managers Directive (AIFMD).

These arrangements allow managers from third countries to access EU markets or to perform fund management by delegation from EU managers.

ESMA also pointed out that the content of the memorandum of understanding signed with the various jurisdictions around the globe followed the International Organization of Securities Commission's (IOSCO) Principles on Cross-Border Supervisory Co-operation of 2010.

In 2010, IOSCO published a series of principles regarding cross-border supervisory cooperation, which explored how securities regulators might build and maintain cross-border cooperative relationships.

At the time, IOSCO claimed these principles would help securities regulators to oversee financial services providers operating in multiple jurisdictions, such as investment advisers, asset managers, hedge funds, credit rating agencies, exchanges and clearing houses.